The Dollar Index (DXY00) is up +0.88% at a 5-week high today. The dollar rose today as today’s rise in oil prices boosted inflation expectations to a 8.25-month high and reduced the chance of additional Fed rate cuts, a supportive factor for the dollar. Also, today’s stock selloff has encouraged liquidity demand for the dollar. In addition, today’s expected Fed ISM manufacturing report was supportive of the dollar. Finally, today’s higher T-note yields strengthened the dollar interest rate differential.
The February US ISM manufacturing index fell -0.2 to 52.4, stronger than expectations of 51.5. February’s ISM prices sub-index rose +11.5 to a 3.5-year high of 70.5, stronger than expectations of 60.0.
Exchange markets are cutting odds on a -25 bp rate cut at the next policy meeting on March 17-18 at 2%.
The dollar continues to see fundamental weakness as the FOMC is expected to cut interest rates by -50 bp in 2026, while the BOJ is expected to raise rates by another +25 bp in 2026, and the ECB is expected to keep rates unchanged in 2026.
EUR/USD (^EURUSD) is down -0.91% today and has hit a 5-week low. Dollar strength weighs on the euro today. Also, today’s economic news that German john retail sales showed the biggest drop in 19 months is bearish for the euro. In addition, today’s +49% increase in European natural gas prices to a 1-year high threatens to slow economic growth and spur inflation in the Eurozone, negative factors for the Euro.
German John retail sales fell -0.9% m/m, weaker than expectations for unchanged m/m and the biggest decline in 19 months.
Swaps discount a 1% chance of a -25 bp rate cut by the ECB at its next policy meeting on March 19.
USD/JPY (^USDJPY) is up +1.05% today. The yen fell to a 3-week low against the dollar today, as crude oil prices hit a 8.25-month high, a negative factor for Japan’s economic growth. Also, today’s higher T-note yields are lower for the yen.
Japan’s February S&P manufacturing PMI rose +0.2 to 53.0 from a previously reported 52.8, the strongest pace of expansion in 3.75 years.
Markets are discounting a +4% chance of a BOJ rate hike at the next meeting on March 19.
April COMEX gold (GCJ26) is up +97.00 (+1.85%) today, and May COMEX silver (SIK26) is down -2.631 (-2.82%).
Gold and silver prices are mixed today, with gold at a 1-month high. A joint US-Israeli attack on Iran has raised the demand for safe havens for precious metals. Also, today’s selloff in stocks has spurred safe haven demand for precious metals. In addition, today’s rise in crude oil prices to an 8.25-month high raised inflation expectations and increased demand for gold as an inflation hedge.
Precious metals fell off their best levels today, with gold quickly slipping into negative territory, after a 5-week high in the dollar index led to prolonged liquidity in the metal. Also, high T-note yields today are barrels for precious metals.
Precious metals are also supported amid uncertainty over US tariffs and geopolitical risks in Iran, Ukraine, the Middle East and Venezuela. In addition, US political uncertainty, a large US deficit, and uncertainty about government policies are prompting investors to reduce dollar holdings and shift to precious metals.
Strong central bank demand for gold is also supporting prices, following recent news that bullion held in China’s PBOC reserves rose to 74.19 million troy ounces from 40,000 ounces in January, the 15th consecutive month the PBOC has increased gold reserves.
Finally, increased liquidity in the financial system is boosting demand for precious metals as a store of value, following the FOMC’s December 10 announcement of a $40 billion monthly injection of liquidity into the US financial system.
Fund demand for the precious metal remains strong, with long-term holdings in gold ETFs hitting a 3.5-year high last Friday. Also, longs in silver ETFs hit a 3.5-year high on Dec. 23, while volatility pushed them to a 3.25-month low on Monday.
As of the date of publication, Amir Espland had no positions (either directly or indirectly) in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. This article was originally published on Barchart.com
